Stock sale and VIHAX exchange

I sold some shares this week and also exchanged my Total International fund for the new Vanguard International High Dividend Yield Index (VIHAX) fund. Read on for more details.

Sale: Dow Chemical (DOW)

Dow Chemical is a 6-year Dividend Challenger in the David Fish CCC list. I originally bought my shares back in June and July of 2013 for $34 with smaller Sharebuilder purchases, for a total of 4.0818 shares.

I decided to sell my shares this week as part of my ongoing portfolio simplification and I sold them at $48.63 for a total long-term gain of $51 or 36% from the original $140 investment.

Dow is in the middle of a merger with DuPont that seems to be a good fit with few overlapping concerns and the long term outlook is generally positive. Longer term plans include splitting the combined company into three separate companies for agriculture, material services and specialty products.

I sold my shares because I only have a small quantity of shares to begin with and they had achieved positive capital-gains. I didn’t want to end up with three even smaller stock positions in the long term as I’m trying to simplify and not complicate my portfolio stock holdings.

I also think that the Basic Materials sector is not a great sector for long term dividend growth companies. I own Dow shares as part of VHDYX so I’m not missing out on any growth or dividends they will continue to provide.

I’m rolling the proceeds into my Income Fund cash reserves and will likely be making another purchase soon as I have a free trade credit from CapitalOne due to a birthday.

Fund Exchange: Vanguard International High Dividend Yield (VIHAX)

Vanguard recently announced two new International Dividend oriented funds: International High Dividend Yield Index (VIHAX) and International Dividend Appreciation Index (VIAAX). Both of these funds are also available as ETFs with the symbols VYMI and VIGI respectively.

I’ve been holding the Total International Fund (VTIAX) as part of my Income Fund for a while now; it was originally part of taxable Retirement accounts but I re-purposed the fund for current Income. VTIAX is a good fund to hold in taxable accounts because it’s very tax efficient with no capital gains distributions. Some of its quarterly distributions can also be counted for foreign tax credit on a US tax return too.

However, since my Income Fund is all about Income, I decided to exchange 100% of VTIAX for VIHAX today, The expense rate is higher (0.3% vs 0.12% for VTIAX) but the dividend income should be higher.

A side effect of the transfer is that I locked-in capital losses of around $1,368 as I exchanged $33,030 at a cost basis of $34,398. Mutual funds allow more flexibility for tax loss harvesting in that you can exchange between two funds with similar correlation and gain tax credit for doing so without triggering wash sale rules. I don’t expect that VIHAX will correlate very closely with VTIAX, although in the short term it probably will, but I do expect higher income from the new position which is my goal.

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8 thoughts on “Stock sale and VIHAX exchange”

do you know when VIHAX will be available and will you be buying the admiral shares for a lower expense rate ? Also with your dividends do you collect and then pick a stock to place the dividends or just drip everything ? seems like dripping is easy but can be bad if shares are re invested into something that is over valued and could be put to more somewhere else.

The fund is available as of today (March 2nd). There are two separate symbols for the same fund: the more expensive Investor shares are VIHIX ($3,000 minimum, 0.4% ER) and the cheaper Admiral shares are VIHAX ($10,000 minimum, 0.3% ER). So you use the symbol to determine which one you want to buy when you place the order. I purchased the VIHAX (admiral) shares.

I have all my dividends paid into a money market account so that I can decide what to purchase next. This is the most flexible approach as you point out and it also provides more control in avoiding wash sale rules.

But there’s nothing wrong with dripping automatically either – you’d only be making 4 purchases a year in relatively small amounts and on average you’d sometimes be buying at ‘high’ prices and sometimes ‘low’. Reducing trading fees and simplicity are some reasons why dripping might be preferred.

The choice is made via the symbol VIHIX or VIHAX that you choose to buy at the time of purchase. This holds true for all Vanguard funds and you’ll see a note at the top of any given Vanguard fund page that states something like “Also available as Investor Shares mutual fund and an ETF.”

In addition, if you were to buy the Investor fund (VIHIX) with an account at Vanguard.com, you’ll automatically be notified you when the balance is high enough to convert to the Admiral share class. Such conversions are one-way (investor -> admiral) and have no tax-impact or trading costs. (If you own $10,000 worth of the Investor shares and manually sold them to buy $10,000 worth of Admiral shares there would be a tax impact – the Vanguard conversion is a one-click ‘upgrade my shares’ kind of deal)

I can see the fund prices listed at TD Ameritrade now. I would expect the conversion from investor to admiral would be only available via a Vanguard account.

It looks like TD Ameritrade is free of fees when buying Vanguard funds but do confirm that since there’s no point in paying to buy the fund.

If you created a vanguard account, you’d need to purchase a minimum of $3,000 of VIHIX to open the account initially, although subsequent purchases could be made commission-free at a minimum of $1 per purchase. There’s no account fee if you agree to electronic statements and there are no load / trade commissions for Vanguard funds and ETFs, and $7 for stock trades (the fees reduce by account balance).

All funds that I own are at Vanguard; the account has more benefits as your balance increases. I have some individual stocks at Vanguard too but the majority of my individual stocks are at capital one.
-DL

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